Market Now Pricing In $770 Billion Increase In Fed Balance Sheet

Tyler Durden's picture


As we have pointed out previously, the primary if not only driver of relative risk returns (because in a world of relative fiat value destruction, it is all relative, except for gold which is revalued relative to all on a pro rata basis), will be who of the big two - the Fed and the ECB - can print more. And up until now, at least since the end of December when the market "suddenly" realized that the ECB's balance sheet has soared to unseen records, the consensus was that it was the ECB that would be the primary source of easing. Especially when considering that there is another ~€500 billion LTRO due on February 29. Yet today's rapid reversal in the EURUSD, driven by Bernanke's uber-dovish comments suggest that something has changed and that the Fed is now expected to ease substantially. How much? For that we look to the latest balance sheet cross-correlation, where if we go by simple correlation, the market is now pricing in (based on the EURUSD cross ratio) that the relationship of the two balance sheets will rise from a multi year low of 1.08 as of a few days ago to 1.15, at least based on the rapid move in the EURUSD higher as can be seen in the chart below. Indicatively, the actual value of the two balance sheets is €2.706 trillion for the ECB and $2.92 trillion for the Fed (or a 1.08 ratio). So now that the EURUSD has risen as high as it has, it implies that the pro forma "priced in" ratio is about 1.15. But wait: one should also factor in the fact that the ECB's balance sheet will rise by at least another €500 billion in just over a month, which will bring the ECB's balance sheet to €3.2 trillion. Which means that to retain the 1.15 cross balance sheet relationship, the Fed's own balance sheet will have to rise to $3,687 billion, or a whopping $767 billion increase!

Naturally, that's a simple heuristic based on only what the EURUSD pair is implying. Of course, this is not a scientific way of predicting where Bernanke will go, but that is at least what the market seems to be telling us. If the LTRO is much bigger, such as the €1 trillion suggested by CLSA, then the ratio changes, but €500 billion is probably far more realistic at this point.

So at the end of the day, the balance sheets of the world's two biggest central banks will increase by about €500 billion for the ECB and ~$770 for the Fed and $655 billion for the ECB.

Incidentally, this analysis assumes all else equal which, with Greece on the verge of default and Portugal potentially in its footsteps, isn't... 

Thus our question is: gold is not on its way to $2000 yet why again?

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Wed, 01/25/2012 - 17:02 | 2097588 Boilermaker
Boilermaker's picture

It'll be as large as it needs to be to squeeze some more life out of this farce.

Wed, 01/25/2012 - 17:03 | 2097590 MillionDollarBonus_
MillionDollarBonus_'s picture


Silver hasn’t even regained support at 35 dollars, EVEN after such a dovish FOMC  – that is a complete JOKE. **LOL**

Silver supply is literally SURGING with these inflated prices. Producers can’t wait to off-load their expensive silver into the greedy hands of redneck silverbugs. It’s only a matter of time before silver reaches FAIR VALUE at $18/oz, much to the dismay of redneck doomers and conspiracy theorist lunatics.


Wed, 01/25/2012 - 17:06 | 2097604 trav7777
trav7777's picture

until silver peaks, it will be subject to the slings and arrows of industrial demand's fickle nature.

That said, the good side effect of all this real inflation is that people are going to be eating less.

That will do more to "solve healthcare costs" than anything these moron congressidiots can.

Wed, 01/25/2012 - 17:12 | 2097643 SheepDog-One
SheepDog-One's picture

Screw 'healthier sheeple' let them cholesteral and fat themselves to death, who cares? 

Wed, 01/25/2012 - 18:01 | 2097851 TruthInSunshine
TruthInSunshine's picture

C'mon, Bernank!


770 billion?

That's all you have in the pipeline for now? That won't keep the repository of wealth known as stock market indices from collapsing before November 2nd, you rookie.

That's weak, Cochise. Keynes & Krugman fart in your general direction.

My Fractional Reserve CERN-Megatron Money Multiplier derived equations instruct that a 2.37 trillion USD QE3 wad (over a 6 month time frame, as in full throttle) will have to be fired off in order to have even a 25% chance of replicating the devastating affects of was a 600 billion USD QE1.

I thought The Bernank was a pro?

Maybe Marc Faber was right after all. Maybe The Bernank is an amateur money printer.


Marc Faber: "Next Week We Will See If Bernanke Is A True Money Printer or Just An Amateur



Wed, 01/25/2012 - 18:03 | 2097883 SheepDog-One
SheepDog-One's picture

I'm surprised the algo-bots didnt throw a tantrum over this meager number....maybe theyre still digesting it.

Thu, 01/26/2012 - 00:33 | 2098795 economics1996
economics1996's picture

This shit sucks.

Thu, 01/26/2012 - 02:19 | 2098930 Manthong
Manthong's picture

OT but..  Any of you German types know if there is anything to this? ..

Thu, 01/26/2012 - 04:53 | 2099002 Nachdenken
Nachdenken's picture

Happening already.  Bank cards have chips for cash transactions and checkout counters are recommended to have electronic transaction registers. Regulations for low or no note and coin transactions are not yet in place at the commercial bank level.

Thu, 01/26/2012 - 06:40 | 2099042 smlbizman
smlbizman's picture

ot, but....wal-mart getting rid of overnight greeters.....a few thoughts:

1) i hate going into any store were some unknown fuck inquires about my life,..

b) in effort to improve profits we have eliminated x amount of minimum wage jobs...

iii) is this the ultimate tsunami animal heading to the hills?



Thu, 01/26/2012 - 07:50 | 2099073 Michael
Michael's picture

I hear there's going to be a self immolation of one or two US soldiers in front of the Whitehouse during this Feb 2nd veterans march for Ron Paul and in protest of the wars. I wonder if the lamestream media will cover this event?


Wed, 01/25/2012 - 18:11 | 2097915 TruthInSunshine
TruthInSunshine's picture

The Bernank has announced the 770 billion was just the warm up run, after all.

Go, Bernank, Go!


Fed's Bernanke says will consider additional QE if the conditions warrant it

01-25 15:32: Fed's Bernanke says will consider additional QE if the conditions warrant it

Wed, 01/25/2012 - 22:30 | 2098536 The Monkey
The Monkey's picture

I am long 30 year treasuries and 3X short the S&P.  94% of my assets are in these two positions.  Come and get me.

Thu, 01/26/2012 - 00:58 | 2098862 falun bong
falun bong's picture

They're brass , and are the size of cantaloupes

Wed, 01/25/2012 - 22:37 | 2098557 The Monkey
The Monkey's picture

Only pussies jawbone.  Print.  Just... Do... It...


Wed, 01/25/2012 - 17:26 | 2097713 Eally Ucked
Eally Ucked's picture

For long time I expected some positive post from you, you're right on man!

Wed, 01/25/2012 - 17:31 | 2097750 Comay Mierda
Comay Mierda's picture

why so much angst?  haven't been butt-loved recently?

Wed, 01/25/2012 - 17:50 | 2097831 SAT 800
SAT 800's picture

Short Mar Silver from $33.245 today on the Comex; we'll see how this works out. Taking profit on my $27.00 Long, reported here on the day I put that on.

Wed, 01/25/2012 - 17:58 | 2097866 RockyRacoon
RockyRacoon's picture

Paper shuffling works... until it doesn't.

You're a stooper showing off his find.

Wed, 01/25/2012 - 18:18 | 2097945 SAT 800
SAT 800's picture

Did you have to take a vow of celibacy too? as well as the vow of poverty, and the hair shirt? I've never understood the psychology, personally.

Thu, 01/26/2012 - 03:43 | 2098973 MsCreant
MsCreant's picture

Tell it to MF Global clients, you know, the ones with the segregated accounts. Rocks is just tryin to help... 

Thu, 01/26/2012 - 08:01 | 2099082 nmewn
nmewn's picture

Some people enjoy the paper chase.

The buying of tax software, the keeping up with the latest tax policy changes on investment, the wash sale rule, the filing, being compelled to sign something under penalty of perjury (that one has always been weird), the warm interaction with different bureaucrats sometimes lasting for years over minute details.

I've never understood the psychology either ;-)

Wed, 01/25/2012 - 18:09 | 2097911 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

think it will rally to 35-36 before a pull back

Wed, 01/25/2012 - 19:16 | 2098081 Spastica Rex
Spastica Rex's picture

But think of what that might do to McDonalds!

Wed, 01/25/2012 - 22:42 | 2098573 disabledvet
disabledvet's picture

i agree food security is a concern here. No one is reporting on how the Greeks are actually living...or few actually. Homelessness has soared, crime, begging in the streets. If that's success then what exactly is failure? And if you feel like inserting "like a give a phuck" as a follow all means...cuz you people don't even know where your food comes from...but the people who are making it sure do.

Wed, 01/25/2012 - 17:06 | 2097605 SheepDog-One
SheepDog-One's picture

Silver has no 'support' here? Looks great to me...then again I bought most all of my silver back at the first bailout when silver was $6-$8.

Wed, 01/25/2012 - 17:28 | 2097731 trav7777
trav7777's picture

ah, the days when I scored 100 ASEs for $652

Wed, 01/25/2012 - 17:35 | 2097738 kito
kito's picture

sheepie, where have you been during todays fireworks?!? more promises at the magic qe3 trough!!! look at them pigs lining up!!! whats that? its empty?!?!?? gasp!!!?? no ACTUAL qe3?!?!? just more hints and innuendo??? cant be!!!

Wed, 01/25/2012 - 18:01 | 2097880 SheepDog-One
SheepDog-One's picture

Yep, but apparently 'good enough' to continue 'full retard' at least 1 more day.

Wow theyre getting desperate out there.

I heard supersonic jets start getting squirrely to handle above 55,000 feet when oxygen gets real scarce.

Wed, 01/25/2012 - 19:18 | 2098082 Spastica Rex
Spastica Rex's picture

My forays to the stratosphere in my flight simulator confirm that.

Wed, 01/25/2012 - 21:34 | 2098417 trav7777
trav7777's picture

not o2, density altitude

Thu, 01/26/2012 - 00:16 | 2098755 cranky-old-geezer
cranky-old-geezer's picture



I heard supersonic jets start getting squirrely to handle above 55,000 feet when oxygen gets real scarce.

It's not about thin O2, it's about thin air and reduced lift, barely enough lift to keep it flying unless going REAL fast.

With airliners it happens at lower altitude, around 38,000 ft.  Barely enough lift in that thin air to keep that heavy jet flying.  A sizeable control surface change can kill enough lift to make it drop like a rock down to denser air a few thousand feet below and lift is regained.

It's why airline pilots are advised to leave it on autopilot at high altitude.  AP makes tiny little control surface changes that won't affect lift.

Great examples of this phenomenon in the book "Airframe".

Also verified on Flight Simulator in Boeing 777 (about 250 hrs logged).

Wed, 01/25/2012 - 18:09 | 2097907 slewie the pi-rat
slewie the pi-rat's picture

i share your Q, S_D1!

i read the goldSeek closing report yest, and trader dan said according to his calculations (and i usually agree w/ dan) we needed a close above mid-32 to complete the technical break ^^thru the MDA so this is now confirmation, according to him, i would surmise

NB gold did not lead here:  Ag broke thru first (mon) and Au followed today, also by % gain

so, tyler is high on gold, and that's fine, and he may be right about the "cause" being "implied QE"  but after 6 months, maybe he should wait another 5-6 more till prez0 gets rollin and the "market" shows its love for him

yes! resistance now = support @ mid-32 zone

been a while for us too, eh?  i've been wrong since the last drop and incorrectly "calling" the seasonal pre-Xmas hi-probability ramp.  ooops!  being wrong has not 'cost' me 10 cents, tho.  imagine that! paper value went south, is all.  if i must have some cash, the bullion is there.  other than that, PMs are "not for now"

GSR = 51.5- what's next?  maybe a nice afternoon bike ride?  L0L!!!

Wed, 01/25/2012 - 21:59 | 2098461 new game
new game's picture

slewie-ALWAYS a nice day for a bike ride!

YTD up 19.5 percent...

i say no more


Got silVer Bitchezz

Wed, 01/25/2012 - 17:09 | 2097611 Rakshas
Rakshas's picture

Yep that's what's happening alright.... delivery time more than doubled for my last order; I wish those fargin producers would just fuck off with all the market flooding already.....

If I don't get those spoons out on time there'll be hell on.....



Oh yeah...... SILVER BEECHES!!





Wed, 01/25/2012 - 17:07 | 2097612 peekcrackers
peekcrackers's picture

the sale is over soon on silver ...

Lets see how the paper dose with zirp

Wed, 01/25/2012 - 22:45 | 2098580 disabledvet
disabledvet's picture

you mean "interest rates do with ZIRP." there are whales in this ocean too.

Wed, 01/25/2012 - 17:08 | 2097622 Long-John-Silver
Long-John-Silver's picture

I remember when Meth man was calling for $5 silver. He no longer posts here. When Silver is above $50 will you disappear too?

Wed, 01/25/2012 - 17:14 | 2097657 Hippocratic Oaf
Hippocratic Oaf's picture

One can hope

Wed, 01/25/2012 - 23:27 | 2098679 Goldilocks
Wed, 01/25/2012 - 17:09 | 2097624 LongSoupLine
LongSoupLine's picture



" – that is a complete JOKE. **LOL**"


 – I am a complete JOKE. **LOL**  (fixed it)

Wed, 01/25/2012 - 17:11 | 2097625 GeneMarchbanks
GeneMarchbanks's picture

No such thing as fair value with ZIRP.

Wed, 01/25/2012 - 17:18 | 2097667 peekcrackers
peekcrackers's picture

GeneMarchbanks  plus 1

There is negative value >

 negative reserves banking  system ..the New frontier

Wed, 01/25/2012 - 17:40 | 2097786 Manthong
Wed, 01/25/2012 - 22:47 | 2098587 disabledvet
disabledvet's picture

how come only one dollar bills? why not hundreds instead? or is that...too much money?

Wed, 01/25/2012 - 17:10 | 2097628 homersimpson
homersimpson's picture

Looks like MDB took over Robotard for dumbest troll of the year.. and it's only Jan.

Wed, 01/25/2012 - 17:17 | 2097669 AC_Doctor
AC_Doctor's picture

MillionDufusBoner strikes again with his pragmatic precious metal insults.  The only thing surging is your record of ignorance regards pm's.

Wed, 01/25/2012 - 17:30 | 2097745 trav7777
trav7777's picture

you can say what you will about those of us who draw your ire, but we draw eyeballs.

You people (lemmings) would totally KILL this website if left to your own devices.

Wed, 01/25/2012 - 17:42 | 2097805 tmosley
tmosley's picture

lol, you are lumping yourself in with the satire characters now.


Wed, 01/25/2012 - 21:36 | 2098421 trav7777
trav7777's picture

yet when I'm not around you fucking ASK FOR ME by're like the jane in a bukkake

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